Alico, Inc. Form 10-Q Summary
Reporting period: Three and six months ended March 31, 2016, compared with the corresponding periods ended March 31, 2015. The request metadata identifies “2015 Q2,” but the filing itself is the fiscal 2016 second-quarter Form 10-Q, filed May 5, 2016. Financial statements are unaudited and presented on a combined consolidated basis.
Business Context
Alico is a Florida agribusiness and land management company owning approximately 121,000 acres, including approximately 90,000 acres of mineral rights. Its segments are Orange Co. citrus operations, Conservation and Environmental Resources, and Other Operations, including mining royalties, oil exploration, improved farmland, cattle, and related activities. Results are seasonal, with the second and third fiscal quarters generally generating most annual revenue.
Financial Highlights
| Metric | Three months ended March 31, 2016 | Three months ended March 31, 2015 | Six months ended March 31, 2016 | Six months ended March 31, 2015 |
|---|---|---|---|---|
| Operating revenue | $71.9 million | $60.0 million | $92.5 million | $79.1 million |
| Gross profit | $19.5 million | $11.7 million | $20.9 million | $14.9 million |
| Income from operations | $16.7 million | $8.2 million | $14.1 million | $6.0 million |
| Net income attributable to common stockholders | $8.7 million | $4.2 million | $5.7 million | $9.4 million |
| Diluted EPS | $1.05 | $0.51 | $0.69 | $1.21 |
| Cash provided by operating activities | Not separately provided | Not separately provided | $12.1 million | $(3.9) million |
Three-month revenue increased 19.8%, gross profit increased 67.1%, and income from operations increased 103.8%. Six-month revenue increased 17.0%, gross profit increased 39.7%, and income from operations increased 136.5%. Six-month net income declined 39.5% because the prior-year period included a $13.6 million gain recognized on the sugarcane land sale.
Gross margin was approximately 27.1% for the quarter and 22.6% for the six-month period, compared with approximately 19.5% and 18.9%, respectively, in the prior-year periods. The filing does not present a separately labeled margin metric; these percentages are calculated from reported revenue and gross profit.
Segment and Operating Trends
- Orange Co.: Revenue increased 21.2% for the quarter and 19.5% for six months. Six-month gross profit increased 40.1% to $21.0 million. Revenue benefited from higher Valencia volume, additional boxes harvested, increased prices per pound solids, and higher third-party fruit resale activity.
- Production: Total boxes harvested increased 8.7% for the quarter and 7.6% for six months. Price per pound solids increased for both Early and Mid-Season fruit and Valencias, while pound solids per box declined.
- Conservation and Environmental Resources: Six-month revenue increased 44.2%, primarily from higher calf sales, but gross profit declined to a $0.5 million loss because of higher calf and water-conservation costs.
- Other Operations: Revenue declined 76.3% for six months, primarily because the prior sugarcane land sale reduced related lease revenue. The segment’s gross profit increased to $0.4 million.
- General and administrative expense: Declined 24.6% for six months to $6.8 million, largely because acquisition-related professional fees incurred in the prior year did not recur.
Cash Flow, Liquidity, and Debt
- Cash and cash equivalents were $3.6 million at March 31, 2016, down from $5.5 million at September 30, 2015.
- Working capital was $51.2 million, compared with $46.6 million at September 30, 2015. The current ratio was 2.90 to 1.
- Total debt and lines of credit were approximately $205.1 million, including $200.1 million of long-term debt before the current portion and $5.0 million drawn on a revolving line.
- Available borrowing capacity was approximately $20.0 million under the $25.0 million revolving line and approximately $56.0 million under the $70.0 million working-capital line. The working-capital line had no outstanding balance but was reduced by approximately $14.0 million of letters of credit.
- Six-month investing cash outflow was $5.8 million, including $5.9 million of capital expenditures. Financing cash outflow was $8.3 million, including debt principal payments, contingent consideration, treasury-stock purchases, and dividends.
- Management stated that cash on hand, operating cash flow, and available credit are expected to provide sufficient liquidity for at least the next twelve months. The company was in compliance with its financial covenants at March 31, 2016.
Material Changes, Outlook, and Unusual Items
- Management revised its 2016 crop estimate to approximately 87%–89% of 2015 production. The USDA forecast a 21.5% decline in the statewide Florida orange crop. Management expects lower volume to support higher prices per pound solids.
- Citrus production remains exposed to citrus greening, premature fruit drop, smaller fruit, weather patterns, pests, labor costs, water availability, and market pricing. Orange Co. began applying permitted foliar bactericides in April 2016 and is evaluating their potential to mitigate citrus greening.
- A South Florida Water Management District contract provides for reimbursement of up to $4.0 million for implementation and an annual fixed payment of up to $12.0 million for ten years of operations and maintenance. Permitting was in process, with payments expected to begin in fiscal 2017, subject to funding and annual approval.
- The company owed $3.75 million of final contingent consideration related to the Orange-Co acquisition, secured by a letter of credit and due June 1, 2016, subject to contractual limitations.
- The company identified an immaterial $1.494 million prior-period tax error. It recorded the cumulative effect in fiscal 2015 by increasing deferred tax liabilities and reducing additional paid-in capital; no prior filings were amended.
- Stockholder litigation related to the Silver Nip Citrus acquisition was subject to a proposed settlement preliminarily approved on April 28, 2016. Final court approval remained outstanding, and plaintiffs’ counsel contemplated seeking attorneys’ fees and expenses.
- The company declared dividends of $0.06 per common share for each quarter and paid $1.0 million of dividends during the six-month period.
Key Investor Verification Items
- Verify the filing period: the source is for the quarter ended March 31, 2016, not 2015 Q2.
- Assess whether projected citrus volume of 87%–89% of the prior year and higher pricing assumptions are achieved.
- Monitor citrus greening, weather, pests, water availability, labor costs, and crop-quality trends.
- Confirm payment of the $3.75 million Orange-Co contingent consideration and refinancing or repayment of the working-capital line maturing November 2016.
- Review debt covenant compliance, variable-rate exposure, letters of credit, and available borrowing capacity.
- Track final approval and potential fees or obligations associated with the Silver Nip shareholder litigation settlement.
- Evaluate the timing, permitting, funding, and annual approvals supporting the anticipated $12.0 million annual water-storage contract payments.